K-Bro Linen Inc. (TSE:KBL) just released its quarterly report and things are looking bullish. It was overall a positive result, with revenues beating expectations by 4.7% to hit CA$51m. K-Bro Linen also reported a statutory profit of CA$0.32, which was an impressive 191% above what the analysts had forecast. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on K-Bro Linen after the latest results.
Taking into account the latest results, the current consensus from K-Bro Linen's six analysts is for revenues of CA$228.8m in 2021, which would reflect a notable 9.4% increase on its sales over the past 12 months. Statutory earnings per share are predicted to swell 13% to CA$0.41. Before this earnings report, the analysts had been forecasting revenues of CA$229.2m and earnings per share (EPS) of CA$0.67 in 2021. So there's definitely been a decline in sentiment after the latest results, noting the large cut to new EPS forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at CA$41.00, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on K-Bro Linen, with the most bullish analyst valuing it at CA$46.00 and the most bearish at CA$35.00 per share. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or thatthe analysts have a strong view on its prospects.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It's pretty clear that there is an expectation that K-Bro Linen's revenue growth will slow down substantially, with revenues next year expected to grow 9.4%, compared to a historical growth rate of 12% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 13% next year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than K-Bro Linen.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for K-Bro Linen going out to 2022, and you can see them free on our platform here.
It is also worth noting that we have found 3 warning signs for K-Bro Linen (1 is potentially serious!) that you need to take into consideration.
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